How And Why Does Federal Communications Commission Go about the Business of Regulating - Case Study Example

First Last Dr. First Last 16 May 2007 FCC Summary FCC (Federal Communications Commission) was formed as a result ofthe passage of the Communications Act of 1934 to regulate all non-Federal usage of communication including radio communication, radio and television broadcast, media, inter-state communication and international communication touching the United States. An analysis of the history, role, regulation, criticism and defense of the agency reveals that there are some areas where there is less regulation than needed for public interest and others where deregulation can be beneficial to the public. Formation The US has always had a policy to allow US individuals and corporations to own radio and television stations. However, in the 1920s, it was realized that the limited broadcast frequencies available would soon be exhausted. The Radio Act of 1927 was passed to define a process of regulation and issuance of licenses to use the available broadcast frequencies. The Federal Radio Commission, the Interstate Commerce Commission and Postmaster General independently regulated the radio, telegraph and wire communication and broadcasting in the United States (Annual Report 1). The areas of overlapping jurisdiction between them created confusion and became a hurdle in regulation. FCC was established in 1934 under the Communications Act of 1934 passed by the US Congress to bring uniformity of jurisdiction. Also FCC was expected to regulate upcoming forms of communication. Act of Congress The Communication Act of 1934 by the Congress gave the charter to FCC to ensure “without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges, for the purpose of the national defense, for the purpose of promoting safety of life and property” [47 U.S.C. 151]. The Communication Act empowered FCC to regulate the “radio, television, wire, satellite and cable” (“About the FCC”) in non-governmental communication. Radio communication in government’s use is regulated by another agency, National Telecommunications and Information Administration. The Act was a successor of the Radio Act of 1927. President Franklin Roosevelt requested for a new Act in January 1934 to consolidate legislation for wire and wireless communication. The Radio Act was more commercially inclined and the new Act, when passed in June, gave a public interest face to it. The Act has been criticized for a long time but the fact that it has survived for over 60 years is a testament to its strength to incorporate amendments with the changing face of technology, industry and consumer choice changes over time. The question, however, remains that how far can this Act be modified in a practical manner to suit the changing environment. The last major amendment made was through the Telecommunication Act of 1996. Congressional Oversight In a democracy, Congress is meant to take policy decisions that are “responsive to the interests or preferences of citizens” (McCubbins, Noll, and Weingast 243). In order to execute these policy decisions, delegation of work is made to domain experts, bureaucracy and agencies like the FCC. As public representatives, Congress applies “political control of bureaucratic decisions” (McCubbins 243) by employing various administrative measures to ensure that the agencies stay within the ambit and intent of the purpose for which they were created. These measures include having the leverage of budget control, defining procedures and rules of operations, investigations of fraud and waste and monitoring whether the “intent” of the Congress is followed. Administratively this is done through various Congressional committees and subcommittees where representatives of the agencies appear for hearings on a regular or ad-hoc basis. Through continuous monitoring, the Congress also keeps an eye on whether further legislation is required to for effective safeguard of public interest. FCC’s operations come under the oversight of various congressional committees. These include the Appropriations Committees of the House and Senate, Senate Commerce, Science and Transportation Committee, House Energy and Commerce Committee, and various subcommittees. The Office of Legislative Affairs within FCC is responsible for liaising on these affairs. Congressional oversight, through the democratic nature of Congress itself, is dependent on the composition of Congress itself. In recent years, Republican dominated congress has followed free market policies and encouraged competition as the tool to steer the industry. It is expected that the new Democrat dominated congress will apply stronger oversight which may include reviewing the implementation of Universal Service and the effects of mergers between large companies that may affect the quality of telecom service in the US (Vaida 66). Amended Communications Act of 1934 The Act has undergone a number of amendments since its inception. It is structured in the form of “Titles” and sections. Title I deals with the FCC and the rules governing the agency. It deals with its structure, functioning, jurisdiction. It also includes details of fee collection schedules and rules governing appropriation of funds. Section 11 [47 U.S.C. 161] specifically mandates the commission to hold a biennial review of all regulations under the Act and repeal or change them if required in the public interest. Title II covers the domain of common carriers such as telephone and radio network providers. These do not include “originators” of messages such as radio and television broadcasters. Title III covers rules and regulations concerning “radio” broadcasts. These broadly mean any kind of wireless communication including television. The regulations are very broad and include licensing, anti-trust provisions and administrative actions that FCC can take against entities that violate these rules. It describes the powers of the FCC [47 U.S.C. 303] as well as lists restrictions on FCC itself such as restrain against applying censorship [47 U.S.C. 326] and providing equal air time to persons seeking public office [47 U.S.C. 315]. Title IV includes Procedural and Administrative provisions including details of jurisdiction of district courts to hear FCC’s recommendations against a violator of FCC rules [47 U.S.C. 401] or the appeals process [47 U.S.C. 402]. It also includes the procedure for conducting enquiries and filing reports by the officers of the agency [47 U.S.C. 403, 404]. Title V discusses the penal provisions and forfeitures. A framework is laid down under which a violator can be awarded penalties or equipment is seized or forfeited. Title VI covers rules and provisions relating to the cable industry. This Title was added in 1984 and expanded in 1992 and includes provisions such as obligation on cable companies to include local [47 U.S.C. 534] and non-commercial [47 U.S.C. 535] channels, ownership restrictions [47 U.S.C. 533], regulations on rates and services and guidelines on “development of competition and diversity” [47 U.S.C. 548] in the interest of public. Other provisions include subscriber privacy, consumer protection and rules governing limitation on broadcasting adult material. Title VII comprises of “miscellaneous” provisions such as authority of the President under a war situation [47 U.S.C. 606] and other clauses. Organization According to the act the agency is to have five commissioners for a term of five years nominated by the President and approved by the Senate. No more than three commissioners can be appointed from the same political party. One of these commissioners is appointed by the President as the FCC chairman. The FCC chairman, in turn, hires the bureau chiefs and departmental heads. The agency comprises of six bureaus and ten offices. Each has a specific function to perform. Regulation Mandate and Economic and Social Impact The impact of the communication industry on the economics and society are only too obvious. The cost at which consumers access communication services, job creation within the industry, e-commerce, and profitable growth of the industry each have an impact on the national economy. The suitability of content on media for younger audience, provision of services to less developed areas and communities, a balance between public interest and industry growth are factors that affect the social well being of the citizens. As mentioned earlier, FCC has the broad responsibility of regulating the wire and wireless telecommunication and broadcast industry. In doing so, it oversees not only the regulation and issuance of licenses but also directly impacts the economics of the industry and the social fabric of the US. This section mentions some of these regulatory actions. FCC has the stated objective to foster competition to “improve the Nation’s economy” (“FCC Strategic Plan”) and ensure that telecommunication services and broadcasts are provided at “reasonable charges” [47 U.S.C. 151]. It does so by keeping an eye on whether services are above or below cost, which consumers could be overcharged to subsidize others and whether enough innovation is taking place to provide quality and choice to consumers (Ellig 40). In the Telecommunication Act of 1996, FCC began a process of deregulation citing the strategic goal of fostering competition further to bring down prices. These steps have a direct bearing on profitability of the industry as well as consumer spending. On the social front, several rules and regulations exist which determine the distribution of content in the media. FCC aims to keep a balance between entertainment, educational and informational content over the airwaves. For example, explicit protection is provided in the Act [47 U.S.C. 254] to educational institutions and rural healthcare providers in terms of equal or lesser rates than those offered to urban commercial broadcasters. Provisions also exist to protect minors against sexually explicit content. There has been a debate and criticism on whether FCC has been effective in following the intended goals. This is discussed in the section Criticism. Rulemaking and Enforcement FCC has an elaborate five step process to change, strike down or issue new rules. A Petition for Rulemaking regarding any rule can be filed from within the FCC or outside it. All such petitions are released regularly and a time of 30 days is given to public to comment on it. FCC then reviews the petition and associated comments and then issues a Notice of Inquiry (NOI) asking for further clarifications on the issue. Another time of 30 days is given to the public to respond. After final review of these comments, FCC may either reject the petition citing reasons for it, or move the process further by issuing a Notice of Proposed Rulemaking (NPRM). FCC can also issue an NPRM directly without an NOI. NPRM contains a set of proposed changes. The public is again asked to respond in a specified time. If there are alternate proposals available, a Further Notice of Proposed Rulemaking (FNPRM) is subsequently released. After reviewing all comments, FCC issues a Report & Order. This document may contain amendments to rules or reasons not to amend them. Once an R&O is issued, the public is given one more opportunity to respond by filing a Petition for Reconsideration. Finally a Memorandum Opinion & Order is issued noting whether the changes have been incorporated or rejected. This method of rulemaking aims to ensure extensive public and industry participation in the process. The management of the agency is divided into specialized bureaus and offices and using the internal organizational structure, experts are able to become part of the rulemaking process. Theoretically, the agency has continued to maintain its focus to assess whether a license holder is acted in the public interest when offering its network, equipment or broadcasting. However, in application, the meaning of this phrase has different meanings in different contexts. Enforcement takes place through the Enforcement Bureau. Though practiced rarely, FCC has the most powerful enforcement tool of revoking a company’s license. Other enforcement options include placement of fines and penalties. Criticism The rules, regulations and conduct of the FCC have been heavily criticized over the years. The criticism pertains to various effects of enforcement of FCC rules including economic and social impacts. These include criticism of the process of auctions through which FCC now grants licenses, collection of funds under the Universal Service rules and over the rule making process itself. Perhaps the biggest criticism is typified by the battle between enforcement of rules and the First Amendment. Universal Service has been recognized ever since the introduction of the original Act of 1934 which formed the FCC. It was acknowledged that steps needed to be taken at the government level to encourage telecommunication companies to provide services to under-privileged or under-developed areas of the US. In 1996, the amendments through the Telecommunication Act further acknowledged the importance of providing broadband services at a “reasonable rate” [47 U.S.C. 254] to healthcare, education and rural areas. This was considered a significant public interest move to ensure that companies would be facilitated to enter high cost, low income or special public interest areas. However, severe criticism was pointed at two different levels. Interstate telecommunication companies were charged an amount to fund the E-Rate program of Universal Service. When the telecommunication companies moved to identify this additional cost in their bills to consumers, FCC moved to restrict the language they used in itemized billing. This was termed as limitation on freedom of speech where “By picking a side and prohibiting expression of any other, government thus increases the chances that undecided citizens will adopt the preferred view and that it will become or remain binding policy” (Walker 3). Contested in courts, it was argued that the government through FCC moved to suppress a viewpoint and restricted the public’s right to hear both sides before forming their own opinion. At a different level, Universal Service is a target of criticism in terms of spending the amount to carry out the program. Sometimes termed as the “Gore tax”, E-rate was to be paid through contribution of interstate telecommunication companies. There is little oversight in the case where the same company buys a cable operation in a subsidized district and gets the benefit of Universal Service. Also, it has been argued that the success of the program is measured by its spending rather than its effectiveness (Shuler 366). There is no clear assessment of whether increased usage of broadband and Internet in Universal Service designated areas is because of this program or through the de facto pervasive nature of the Internet itself. There has been a continuous battle by the proponents of freedom of speech under First Amendment against the FCC rules, regulations and their enforcement. FCC defends its rulemaking on its basic precept of ensuring fairness of speech and protection of the public interest. On the other hand, free speech activists claim that FCC rules stifle expression and consequently limit debate and exercise of choice by consumers. A major criticism in this respect is on the lack of clarity of FCC rules that regulate “content” in media. It has been observed that owing to this lack of clarity, stations are forced to act “either too cautiously or not cautiously enough” and this leads to results of “confusing and inconsistent enforcement” (Cotlar 48). Cotlar also cited (68) the Supreme Court case of National Endowment of the Arts v Finley in which the court clearly identified vague standards by stating, “Under the First and Fifth Amendments, speakers are protected from arbitrary and discriminatory enforcement of vague standards.” Historically several provisions of the Act and FCC rules have been made for public interest and subsequently challenged as restricting free speech. While many have been upheld by the courts it is evident that the courts have taken the position of inadequacy and clarity of rules rather than the merit of these rules. This has often been construed by pro-regulation groups as sacrificing the needs of the society at the altar of legalities. However, it must be realized that it is merely a different point of view in reaching the same goal of public interest. The anti-regulation groups maintain that choice and free speech would put the consumers in a better position to reject programming which is not in the public interest. Abernathy, a former commissioner of FCC maintained (436) that FCC’s sole responsibility was to implement constitutionally permissible laws passed by the Congress and not add their own views in doing so. She maintained that this was not required since “broadcasters do not act alone” and “the American public places an important check on the role of the media”. In the above perspective several court battles have been fought from time to time over various provisions of the Communication Act and their implementation. Notable among them have been targeting the Communication Decency Act of 1996. However, in the case ACLU v. Reno the Supreme Court overturned parts of the law relating to “indecent” content compared with “obscene” content. It was argued that while obscene content could be regulated, the term “indecent content” was too broad to accurately define what was being regulated. The Government finally was able to enact the Childrens Internet Protection Act in 2000 to protect children from such content in schools which were funded through E-Rate program of Universal Service. This watered down legislation is restricted to a specific domain of educational institutions and linked to funding rather than outright ban on such content. Finally, broader criticism is also directed at the FCC internal processes and priorities. For example, some argue (McGregor 224) that the process of rulemaking which claims public participation does not elicit the kind of responses that are relevant to make or amend rules. Studies have also appeared which indicate that the economic and financial outlay required for some FCC functions such as overseeing telecommunication costs in public interest themselves are very cost heavy and the net benefit is less than if the industry was left to market forces alone (Ellig 95). Regulation must be reformed In the preceding discussion it is evident that regulation by FCC acts as a double-edged sword. While in many situations, it protects public interest, it also invades the right of free speech in certain other situations. The industry also views regulation as restricting growth and competition. There are two other aspects that must be kept in view before concluding whether regulation should be reformed, increased or decreased. These are effective participation of stakeholders in decision making and the convergence of technologies in the industry. The importance of these two aspects lays in the fact that FCC’s basic precept is to regulate the telecommunication industry and to do so in a manner that promotes public interest. The earlier section on the rulemaking process at FCC described elaborate steps to ensure participation from public before concluding any rules. However, there is no implicit measure of whether this participation is effective or not. McGregor studied the effectiveness of public participation through email and found that most emails were not considered by FCC even though they did establish a pattern of opinion (McGregor 219). The reasons for exclusion were twofold. One, the emails expressed opinion but did not answer the specific questions that FCC asked. Second, 40% of emails were received in the “Sunshine” period where the commission announced that no comments would be entertained as the proceedings were going into a public hearing. This thesis is supported by another study conducted in 2006 which evaluated thirty years of FCC operations to quantify the influence of Congress, President, industry and citizens on the regulation process. Of the four stakeholders, it was suggested that citizens had the least influence on rulemaking (Napoli 209). The industry had the highest influence by virtue, first of all, being involved in the process itself and, secondly, by its influence on Congress through lobbying groups such as broadcasting and cable associations (Napoli 207). The other aspect having direct bearing on regulation and rulemaking is the convergence of technologies. Even though the 1996 Act did include guiding principles for encouraging usage of newer technologies, it is quite clear that technology and media has moved at an enormous pace. Practically all media is available on all kinds of infrastructure. Voice, video, applications and data are available through cable, phone and wireless communication. This places a responsibility on FCC to catch up and devise rules that let the industry “thrive on multiplicity, rather than drowning in it” (Reiter 42). In view of the above, it is concluded in this paper that there should be reforms to FCC and its regulation process. These reforms must allow regulation in certain areas such as media ownership and deregulation in other areas where First Amendment issues arise. Media ownership is currently concentrated in 5 companies that control roughly 80% of the market. The original reasons for allowing wider ownership were an increase in the programming content. This was indeed achieved and additionally cable and broadband provide alternate media. However, diversity in media could be sometimes misleading as a consumer reading Time magazine, watching CNN for news and HBO for films is dealing with the same company, Time Warner. Larger companies with more resources also make it difficult for smaller companies to operate in the same space. In other areas, there is room for further deregulation. For converging technologies, pre-emptive regulations can have a “chilling effect” on the industry and it has been shown that, in the past, deregulation resulted in substantially increased informative programming (Hazlett). Works Cited Abernathy, Kathleen Q. “The Role of the Federal Communications Commission on the Path from the Vast Wasteland to the Fertile Plain”. Federal Communications Law Journal. 55:3 (2003) 435-440 “About the FCC”. Federal Communications Commission. 12 April 2007. 14 May 2007. “Annual Report 1935”. Federal Communications Commission. 14 May 2007. Cotlar, Andrew D. “You Said What ? The Perils of Content Based Regulation of Public Broadcast Underwriting Acknowledgements”. Federal Communications Law Journal 59:1 (2006) 47-66. Ellig, Jerry. “Costs and Consequences of Federal Telecommunications Regulations”. Federal Communications Law Journal 58:1 (2006) 37-102. “FCC Strategic Plan”. Federal Communications Commission. 6 February 2007. 14 May 2007 Hazlett Thomas W., and David W. Sosa. Chilling the Internet? Lessons from FCC Regulation of Radio Broadcasting. 19 March 1997. Cato Institute. 13 May 2007 . McCubbins, Mathew D., Roger G. Noll, Barry R. Weingast. “Administrative Procedures as Instruments of Political Control”. Journal of Law, Economics, & Organization. 3:2 (1985) 243-277. McGregor, Michael A. “When the "Public Interest" is Not What Interests the Public”. Communication Law & Policy 11:2 (2006) 207-224. Napoli, Philip M. “The Federal Communications Commission and Broadcast Policy- Making 1966-95: A Logistic Regression Analysis of Interest Group Influence”. Communication Law & Policy 5:2 (2000) 203-233. Reiter, Scott. “Regulatory Challenges: When Old Regulations Meet New Technologies”. Rural Telecommunications 25:1 (2006) 38-42. Shuler, John A. “A Critique of Universal Service, E-Rate, and the Chimera of the Publics Interest”. Government Information Quarterly. 16:4 (1999) 359-369. Vaida, Bara. “The New Overseers?”. National Journal. 38:36 (2006) 66-67. Walker, Helgi. “Communications Media and the First Amendment: A Viewpoint-Neutral FCC is not Too Much to Ask For”. Federal Communications Law Journal 53:1 (2000) 5-27. Read More